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Sunday, September 30, 2007

Taxes and Congressional Salaries (Expansion of Other Post)

Personally, I don’t have a problem with members of Congress making about $160,000 a year, or even $200,000 a year. They have such a huge influence over our nation, and I believe their high levels of education and their high levels of global and intercultural understanding are worth it. A high salary promotes competition, which I want to be as high as possible (fair competition, that is). And if you think about it, $200,000 isn’t a very large salary for skilled, high-ranking jobs. There are 535 members of congress, and if each of them makes $160,000 a year, the total annual cost of their salaries is $85.7 million. David Beckham alone makes $43 million, more than half of what we pay the entire Congress.

Now, I realize that Beckham is paid by the revenues earned by the L.A. Galaxy, not by the money taken from taxpayers, but consider how much we actually pay toward Congressional salaries. In 2004, 68% of the total number of taxpayers, 42.5 million people, paid a positive net value in taxes. This means that (.68)(42.5 million) = 28.9 million people paid money toward Congressional salaries.

$85.7 million paid / 28.9 million payers = $2.97 per taxpayer for the entire Congress

or, look at it another way:
$85.7 million paid / 300 million Americans = $0.29 per person for the entire Congress

The cheapest ticket to an L.A. Galaxy game is $18.00.
Including players, coaches, directors, trainers, and managers, the L.A. Galaxy has 31 people.

31 people / $18 per ticket = $0.58 per ticket for each member of the L.A. Galaxy.

L.A. Galaxy fans pay David Beckham more than our Congress. (Yes, I understand that not all ticket revenues go toward salaries, but you get my point.)

I think that if we want to cut wasteful spending, we shouldn’t worry about nickels and dimes until we take care of the dollars. For example, we have spent over $450 billion (yes, with a “b”) on the War in Iraq since 2003.

$450 billion / 4 years = $112.5 billion per year
$112.5 billion / 28.9 million payers = $3,900 per taxpayer!
$112.5 billion / 300 million Americans = $375 per person!

For my money, I’d rather get season tickets for the L.A. Galaxy ($250), a David Beckham home jersey ($65) and away jersey ($30), and get food and beer at the game!




http://www.nationalpriorities.org/Cost-of-War/Cost-of-War-3.html (This website has a “real-time” clock of the money being spent.)

I'm going to suggest that an economist is likely to take a different view with respect to looking at salaries. Specifically, we are going to wonder if a salary is associated with efficiency or not. For efficiency, the wage or salary paid should reflect ( be equal to ) the value of the marginal product produced by the worker.

When it comes to members of Congress, what do you suppose might be the value of the marginal product of a Congressman or Senator? Members of Congress may not actually produce any goods or services. After all, they don't sell anything. The revenue they spend comes through the power to tax, rather than through selling a product or service others value. In addition, members of Congress participate in rent seeking which is inefficient. Given that tax revenue tends to create inefficiency, given that members of Congress participate in rent seeking, and given the frequent corruption in Congress, some have argued that members of Congress might, from an efficiency point of view, have negative values of their marginal product.

It is a difficult economic analysis to compare wages or salaries across different types of productive activities, unless you do so by reference to the value of the marginal product for each of the productive activities.
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